Amateur investors think that the pros just “know it all,” that they have secret access to great deals, and then when they see one, they instantly know it and jump on it. Amateurs think the pros’ knowledge is so powerful that they can smell a bad deal a mile off and keep far away.
In other words, the amateurs think that, somehow, investment is “easy” for the pros.
They want to emulate the pros. So an amateur will find a deal, listen to the broker sell him on it as a great deal, convince himself it’s a great deal, and then get burned.
I’ve seen it happen. An amateur brings me a deal to analyze for them. They think the deal is incredible, because the broker said so, and because the returns are supposedly off the charts.
When I point out what they are overlooking, rather than look at the deal more skeptically, they get angry at ME for bursting their fantasy, and go look for another mentor to tell them the deal is great.
They are not looking for mentorship or advice. They are looking for cover – someone more experienced to tell them to go ahead and do what they already decided to do anyway.
Pros are different.
Pros don’t get excited about deals. They don’t get emotionally attached to deals.
They get attached to data. They love the data, not the deal.
So pros use metrics and checklists. They use metrics to decide what deals to look at – which market, what submarket, what class, what size, what age, what cap rate, buy & hold or value-add – and they stick to those deals.
They use metrics to decide whether to bid – what’s their cost to run the units, how much capex per unit, how much leverage, what’s the target return.
Then, when they do a deal, they use checklists. Checklists to make sure they get every due diligence item they require. Checklists to make sure that every due diligence investigation is completed and satisfactory.
The amateurs think the pros have it all in their heads and just know. The pros, however, don’t leave it to their gut, or just knowing, or getting a good feeling about a deal.
They trust their metrics and their checklists. They know that they cannot keep all the relevant information in their heads. They need to record it somewhere and check it off against the rules they have set for themselves.
Pros don’t invest on intuition or feel or momentum or market sentiment or because some other guy just made a lot of money doing the same thing.
They invest on data.
Always remember: Love the data, not the deal.